As an Arsenal Football Club fan, one has the natural tendency to follow the progress of both present and past players of the revered North London title-winning institution. The prestige of playing for the club comes along with all the bell and whistles required to make life living in the small yet expensive hub city often dubbed to be the center of modern Europe, a breeze.
It then rather saddened me to read about the unfortunate turnaround of fortune of a former player whom I considered as having a big heart and passion for the beautiful game – but was a bit aloof and care-free on the pitch. It turns out this was a character trait that extended to his financial affairs. He was recently reported as sleeping on the couch of a friend without a penny to his name. How can that happen, you might ask, as the average wage – and yes, wage and not salary (because footballers are paid weekly and not monthly like the rest of us) is 50 000 Great Britain Pounds!
So how does one go from earning roughly around the previously discussed figure, to being dead broke? Whilst this turn of fortune is not uncommon for celebrities, qualified professionals and lottery winners, it can be explained by a simple lack of investor mentality. This mindset can be instilled in us from a relatively young age if you have had the luxury of growing up with parents, teachers or a mentor who imparts this knowledge to you. It can also be learned later in life – often the hard way.
Similar to starting a business, the biggest barrier to entry into any form of investment is always the initial capital. Once you have it, coupled with the investor mentality, it’s hard to fail financially in life: just ask the current sitting American president! Now as obvious as this sounds, you need to put in money to make money. That is why investing in equities, for instance, is mainly carried out on a large scale by banks – with your money!
What you do with the money when you inherit it, win it, or save up from a weekly or monthly project-based income is more important than just having it in the first place. Wouldn’t you agree that money comes then often goes faster than you realize? Having a grasp on why it leaves so fast is what we should be paying attention to.
Let’s firstly be sensible about this – investing is always a long-term project. A desire to reap short-term gains or having such a mentality is paramount to risky gambling or betting against the odds. Granted we all deserve to reap the fruits of our hard earned labour in the present. After all, a little return while we are still young enough to enjoy it is a fine aspiration. But wouldn’t you want to have the longer term view of financial security and also afford future generations this comfort by leaving behind a legacy however small it is?
“Patience is an investor’s game – if you don’t have any, don’t bother with the mechanisms that don’t lock you in for a few months to enable you to realize a return.”
Enough of the rhetorical questions and statements. Let’s briefly look at a few investment vehicles in the true fashion of Debunqed! so as not to confuse ourselves with the financial jargon – the main “off-putter” for people paying attention to investing in the first place.
Here are the main investment types:
1. Savings (bank or building loan): the least risky and tends to suit the most patient of investors. Usually, someone who loves to watch paint dry. The only risk is using a non-government backed bank. The higher the amount invested the better the interest rate – so this benefits the already wealthy. Some savings accounts are even known to offer 0% or fractional decimal interest rates which are calculated nominally.
So it begs the question – why even consider putting your money here? Well, utilizing this investment strategy helps with – other than the obvious emergency access to cash – a good credit score which comes in handy when applying for loans or obtaining financial backing to start a new venture for example. So they do have some use.
Risk level: Little to none.
2. Property (residential or commercial): This is the golden nest egg of investing – if you can raise a bond for property or inherit one. It is one asset class that tends to only appreciate and relatively well over the years depending on what is happening in the area/town or economy. Getting in is the difference between having a spender or an investor’s mentality.
What do I mean? Well, in the sense that if you can save up for a deposit to buy a brand-new luxury car, you could and should do the same for a house. That way each “monthly rent” payment goes towards something you will eventually own. You can also buy to rent and the income generated from the tenant will pay the bond.
Consider the appreciation value of properties in your local area over the years. Food for thought. But like anything valuable, you must be prepared to maintain its upkeep – the cost being more than your weekly carwash. But in the long-run when you realize its future value you will be able to downgrade and have some extra cash to spend. You might get that car of your dreams or travel and see the world.
Risk level: Low to moderate.
3. Share/Stocks: I believe the days of the stockbroker are numbered. Trading firms and hedge fund companies are slowly being replaced by AI computers. These days, as an individual, you can take full charge of a portfolio of equities, CFDs, Futures, Commodities, Options, Forex and Cryptocurrency (now the hot favourites) directly from your laptop, tablet or mobile phone.
There are a number of online trading platforms out there so it is a good idea to go with the accredited ones.
One of the key benefits is that they all offer a free trial – which often gives you a mock simulated account – not only a great way to learn about the tools but you get to study the above-mentioned markets. There are aspects you need to pay attention to. One being leverage trading which is essentially borrowing money to trade (which bears interest) and a double whammy if or when things go south.
Risk level: High to Excessive.
4. Mutual funds: as the name suggests it is derived from a pool of funds from a specific institution or industry and is often offered by institutions as a supplement to retirement plans (pensions and annuities).
They offer you a return (often a stable monthly or quarterly pay-out) based on a fixed term that is not accessible immediately by the investor.
The offering institution would then apply the pooled monthly contributions from members to a diverse portfolio to spread the risk. They do however require the management and attention of a portfolio manager and are thus susceptible to the principal-agent problem.
Risk level: Low to moderate.
5. Venture Capitalism or Angel funding (funding/backing/shareholding): If you have some spare cash and don’t want to bear the risk and burden of running a business yourself, you can fund one that you believe will be successful. Confidence is placed by you on the owner and the offering. You can then state the terms for release of your funds such as a quarterly return on investment or a larger stake in the business and its profits.
Rapper Nas is known for his investment in Silicon Valley start-ups as a Venture Capitalist – which gives him a share in the companies he backs (after careful vetting) with the hope of it growing exponentially to increase that shareholding’s worth.
Celebrities and sports stars usually have the capital to diversify their portfolio by investing in or starting up a new business – such a notable venture was the Rapper/Producer Dr Dre’s Beats brand which Apple bought for 3 billion USD.
Risk level: Moderate to high.
6. Rare items (gold, coins, paintings and other collectables): Though not an easy commodity to come by because often the initial value can be quite high (unless of course, you are lucky to find an item at a junk sale or low-key auction), rare commodities can also form part of your future financial security.
Rare coins tend to take a long time to mature in value. Likewise, a painting can appreciate quickly in value if the artist’s “interesting” background comes to light in the press for good or bad reasons. As an example, a rare Nelson Mandela coin once sold for 100 000 USD while he was still living.
So, one can only imagine what the few in circulation are worth now.
There are hoards of items to choose from so do your research. Reading up on the history of an item before purchase is key. People often own treasures without knowing it. A rummage around old antique shops and secondhand sales can reap rewards if you know what you’re looking for.
Risk level: Low to moderate.
7. Bonds: these are long-term interest-bearing certificates issued primarily by governments (via monetary policy and used often to control the economy to a certain extent) but also by certain large public institutions. Bonds give the owner a guarantee of a future value using a specially controlled interest rate. They are usually issued with fix terms and can only be accessed after 3, 5 or 10 years.
This locks you in to hold the bond for the agreed period regardless of which way the interest rates are going.
Naturally the higher the rates the better for the holder. As a cautionary note, you are subject to the regulatory activities and monetary policies of the economy in which you hold the bonds so choose where you buy very wisely.
Again, research your product. Accessing bond markets is also not easy and you may be subject to complex rules pertaining to the country, residence status and your credit score and so on. It is really for the long-term investor and can be used in the same way mutual funds tend to be applied, to supplement one’s retirement annuity package.
Risk level: Moderate to high.
So now that we have briefly discussed various mechanisms available and what to do with that windfall, we need to remember the importance of imparting this knowledge to our youth, friends, and family so as to continue the cycle. The simple answer being: Education. The lack of it is one of the fundamental causes of poverty. A number of celebrities and sports stars have overlooked it’s true importance so as to follow their true passion and skill. This is not necessarily a bad thing – if you have the right people around you to help you manage your finances.
In my opinion, the aforementioned footballer was taken to the cleaners by his wife. It was reported he signed documents without knowing the full content and liability of what was being presented to him. It was also said that she would even bring paperwork to the football club’s training ground for him to sign.
Let’s be honest, we don’t know the full facts but there is a lesson. This “wife” character could be anyone that you entrust with managing your finances so, be wise as to who you choose to oversee your accounts.
Having a grasp of your total worth/ your assets (if any) less your liabilities is the first place to start. Once you know what you have or don’t have, you can then set goals. Think about what you need to do to achieve a net worth that will sustain you for the long term. Granted we all must pay bills – so we will write down that part of our income but we need to focus in on what is being done with money that is left (if any) once your overheads are met.
Educate yourself (skip a binge session on Netflix if need be). Take a deeper dive into the investment vehicles briefly spoken about – the resources page will provide more comprehensive details about all 7 vehicles discussed, where to go to find out more once you have decided and which vehicle or combo would fit your investment type and appetite for risk.